NEW YORK (CNN/Money) -
Stocks rallied Tuesday after the Federal Reserve held interest rates steady and hinted it will keep them there for the foreseeable future, setting the market up for at least another few sessions of gains, analysts said.
The Nasdaq composite (up 49.35 to 1932.26, Charts) gained 2.6 percent, while the Dow Jones industrial average (up 140.15 to 9748.31, Charts) and the Standard & Poor's 500 (up 15.66 to 1046.79, Charts) index each posted gains of around 1.5 percent.
The 10-year Treasury note, whose yield had been as high as 4.30 percent earlier Tuesday, turned around, rallied 21/32 of a point in price and saw its yield drop to 4.18 percent.
At the conclusion of its policy-setting meeting, the Fed announced that it had opted to hold the federal funds rate steady at a 41-year low of 1 percent. The central bank also said that despite signs of strength in the economy -- increasing productivity, firming corporate spending and a stabilized labor market -- the risk of inflation becoming undesirably low remains. Therefore, the Fed said it would keep its monetary policy accommodating for the foreseeable future. (For a more detailed view of the Fed meeting and statement, click here.)
"The Fed pretty much said we're on hold for now. Meanwhile, Thursday morning's GDP [gross domestic product] report is expected to show third-quarter growth of 6 percent or better," said Robert Long, vice president of investments at Melhado, Flynn & Associates. "You combine those two factors, where you have growth and the Fed's going to let it ride for a while, and that's a great environment for stocks."
Stocks had been higher for most of Tuesday's session, helped by a pair of optimistic economic reports and big merger activity for the second day in a row, but jumped to new highs after the afternoon Fed decision and accompanying statement.
Long thinks the euphoria should spill over into Wednesday's trading, particularly as there are no key economic data expected, and not many market-moving earnings reports expected.
Among the financial reports that will be of interest: Boeing (BA: unchanged at $36.04, Research, Estimates), ConocoPhilips (COP: up $0.05 to $57.40, Research, Estimates), Halliburton (HAL: down $0.26 to $24.08, Research, Estimates), Janus Capital (JNS: down $0.05 to $13.54, Research, Estimates), and Sirius Satellite (SIRI: down $0.17 to $2.27, Research, Estimates), all of which are due to release results before the start of trading. (For a look at the week's key earnings reports, click here.)
Mergers delight anew
Even before the Fed's announcement, a wave of merger activity that began Monday and carried into Tuesday gave the market a lift. Stocks climbed Monday on news of a trio of multibillion-dollar mergers in the banking and insurance sectors, most notably, Bank of America's (BAC: down $0.72 to $72.85, Research, Estimates) $47 billion stock purchase of FleetBoston Financial (FBF: down $0.40 to $38.80, Research, Estimates).
After the close of trade Monday, tobacco behemoth R.J. Reynolds Tobacco Holdings (RJR: up $5.72 to $48.97, Research, Estimates) said it will buy British American Tobacco PLC's U.S. businesses for more than $3 billion in cash and stock. Shares of RJR rallied more than 13 percent.
Chip gear makers were supported by strong earnings news. The world's biggest chip gear maker, Taiwan Semiconductor Manufacturing (TSM: up $1.12 to $11.56, Research, Estimates), reported earnings that grew from a year earlier and beat estimates. Europe's leading chipmaker, STMicroelectronics (STM: up $0.97 to $26.97, Research, Estimates), made a bullish call on the overall sector, saying it expects the global chip market to grow by 18 to 20 percent in the next year. TSM's American depositary receipts gained 10.7 percent in active NYSE trade, and STMicroelectronics closed almost 4 percent higher.
Shares of JDS Uniphase (JDSU: down $0.11 to $3.47, Research, Estimates) fell 3 percent and topped the Nasdaq's most-actives list one session after the company said it will sell $400 million of senior convertible notes to raise cash.
Also supporting the market's advance was a report showing a rise in durable goods orders in September. Durable goods orders rose 0.8 percent after falling a revised 0.1 percent in August. The increase was smaller than analysts surveyed by Briefing.com were expecting, but still was seen in a positive light by investors.
The October consumer confidence index rose to 81.1 from a revised 77 in September, a slightly bigger-than-expected increase.
Market breadth was positive. On the New York Stock Exchange, advancing issues outnumbered decliners by almost eleven to five on volume of 1.62 billion shares. On the Nasdaq, where 2.04 billion shares changed hands, rising stocks beat falling ones by more than eleven to five.
NYMEX light sweet crude oil futures fell 36 cents to $29.56 a barrel. COMEX gold fell $4.80 to $383.40 an ounce.
European markets closed higher, as did Asian stocks overnight.